Health-Reform Controversies

Alittle more than a year ago, leaders of the pharmaceutical industry negotiated a deal to provide billions of dollars in discounts and fees designed to make drugs more affordable to Americans. In return, manufacturers anticipated a larger market for prescription medicines in a reformed national healthcare system, plus favorable policies governing research and development (R&D) and marketing— without explicit price controls.

Now there's considerable uncertainty about how the Obama healthcare-reform program will be implemented, and how well the system will support biomedical innovation and new drug development. Federal courts are weighing the constitutionality of the Affordable Care Act (ACA), while reform critics in Congress are challenging specific policies and curbing funds needed to implement reform initiatives. Some states face serious budget problems and are looking to limit Medicaid programs, including drug benefits. The Obama administration's budget plan for 2012 offers extra funding for biomedical research and for FDA operations, but it's uncertain whether these proposals will survive the budget-cutting battle on Capitol Hill.

Killing the deal

The search for additional funds to pay for healthcare-reform initiatives and government health programs, moreover, is driving the Obama administration to ask Big Pharma to ante up even more. During the healthcare-reform debate of 2009, the Pharmaceutical Research and Manufacturers of America (PhRMA) agreed to pay higher Medicaid rebates and additional taxes, and to subsidize the cost of drugs prescribed to seniors caught in the "doughnut hole" of the Medicare drug benefit— all adding up to some $80 billion over 10 years. A primary gain for biomedical companies was the promise of substantial protection for innovator biotech therapies in the face of more aggressive generic competition.

The administration now proposes to jettison the biotech exclusivity deal and boost consumer access to generic drugs to help gain some of the $54 billion needed to support Medicare payments to physicians. Shrinking the exclusivity for innovator biologics from 12 to seven years and thus speeding less costly biosimilars to patients, according to Obama's 2012 budget plan, would save about $2.3 billion over 10 years. The Biotechnology Industry Organization (BIO) warned that such "questionable short-term budgetary savings" could jeopardize development of new breakthrough cures.

In Washington this month

John Castellani, president of PhRMA, said in a press release that the proposal "flies in the face" of the administration's talk about supporting "innovation, biomedical research, jobs and US competitiveness." But US Health and Human Services (HHS) Secretary Kathleen Sebelius told the House Energy and Commerce (E&C) Committee last month that the administration now feels that a seven-year exclusivity period will permit innovator firms to realize an appropriate return on investment, while ensuring that new breakthrough medicines are widely available and affordable.

Another administration proposal would end pay-for-delay deals between brand-name and generic drug makers that postpone when a new generic product comes to market. The Generic Pharmaceutical Association (GPhA) applauded the shorter biotech exclusivity period, but criticized the curb on settlements as "misguided." Castellani agreed with the generic-drug makers, noting that these "pro-consumer settlements" do not delay generic entry and often bring low-cost drugs to market sooner. Federal Trade Commission officials, however, have been pushing hard to curb such arrangements, which they insist are anti-competitive and costly to consumers. The numbers-crunchers predict that banning pay-for-delay deals will save the government $540 million next year and nearly $8.8 billion through 2021.

The generic-drug gains together provide only a small portion of the resources needed to finance the "doc fix." Most of the money would come from proposed reductions in federal payments to state Medicaid programs, stiffer scrutiny of certain Medicare reimbursement to insurers, and proposals to reduce Medicare fraud and abuse. The plan also proposes to increase tracking of high prescribers in Medicaid programs to reduce excessive drug utilization by states. And manufacturers would be hit with additional penalties if they fail to pay appropriate Medicaid drug rebates and to comply with rebate rules and FDA policies for listing drugs on databases. But these policies generate virtually no tangible savings, and it's questionable whether the squeeze on biotech exclusivity is worth the rather small budgetary gain to the government.